Raser says it's victim of $100 million 'joke'

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By Steven Oberbeck

The Salt Lake Tribune

Only a few years ago, Provo's Raser Technologies Inc. proudly boasted that its new Thermo 1 geothermal power plant near Beaver was poised to usher in a new era of energy production.

The plant, built in less than six months, used innovative technology that Raser said would allow it to profitably generate electricity from the geothermal industry's Holy Grail  water wells that weren't typically viewed as hot enough to produce commercial power.

"Our low-temperature technology can make geothermal a mainstream source of energy for the nation," Raser's now former CEO, Brent Cook, said at a November 2008 ribbon-cutting ceremony for the flagship plant.

Burdened with an unmanageable debt load, Raser filed for Chapter 11 reorganization in bankruptcy courtearlier this year. And its Thermo 1 plant turned out to be a bust.

Today, the company that once portrayed itself as leading a geothermal revolution describes itself as the stooge in a cruel and costly joke, one centered around the very technology that it once proudly hailed.

Raser's Thermo 1 plant  the company said it would be the first of many such facilities it intended to construct  was built using 50 small "PureCycle" generating units developed by UTC Power Corp., a subsidiary of Pratt & Whitney.

The units were described as operating similar to air conditioners, only in reverse. Hot water from the ground flowed into each unit and heated a fluid that vaporized and turned a turbine that generated electricity. The cooled water would then be pumped back underground for reheating.

Yet Raser now contends that the Thermo 1 plant from the beginning was plagued by reliability and maintenance problems and never was able to generate commercial amounts of electricity.

The revelations are contained in a fraud lawsuit filed in federal court in Delaware against UTCP and Pratt & Whitney. Raser launched the lawsuit shortly after its Chapter 11 reorganization plan was approved Aug. 30 by the U.S. Bankruptcy Court in that state.

Raser's Chapter 11 plan didn't provide for any direct payment to the company's unsecured creditors, who combined are still owed some $60 million.

However, the plan did call for the creditors to get a share of any money that Raser might recover from UTCP and Pratt & Whitney, said Douglas E. Spelfogel, a New York-based attorney who served as counsel for the Official Committee of Unsecured Creditors in the Raser reorganization.

And that could be a substantial amount if Raser is successful.

Raser claims that UTCP misrepresented the capabilities of the PureCycle units when it said they could be combined into a plant operation that could produce 10 megawatts of electricity.

Those UTCP misrepresentations, according to Raser, included assurances that such a generating plant could be operated remotely and that no personnel would be required on site. "In fact, a staff of over 10 persons has been unable to make the plant operate as it was supposed to operate," Raser said.

And that "joke," as Raser terms it, may have cost the Utah company and its shareholders more than $100 million.

"The multiple PureCycle units installed at the Thermo 1 plant were never able to generate the 10 megawatts of net output that the plant was intended to produce, and have had constant maintenance and reliability issues," Raser said in the suit. "As a result, the costs of generating even a reduced output have been so extraordinarily high as to make the plant not commercially viable."

Raser said it spent more than $100 million trying to make the plant function as UTCP represented it would.

And to make matters worse, Raser said Pratt & Whitney President Peter Christman toured the troubled plant after it was opened and stated that the idea of using PureCycle technology at Thermo 1 was "nuts."

Christman went on to state that "no one had any business building a plant like this" and added that using the PureCycle system was a "joke," the complaint said.

For its part, Pratt & Whitney counters that the lawsuit is "without merit."

"UTC Power and Pratt & Whitney Power Systems have fulfilled our contractual obligations to Raser and Thermo 1, and the equipment we provided has performed at or above promised levels," Pratt & Whitney said in an emailed statement provided by spokesman Matthew Bates.

The statement also asserted that both companies stand behind the PureCycle system as a viable and valuable option for power generation from lower-temperature geothermal resources.

Yet Raser's lawsuit paints a far different picture.

The company said in terms of the electricity produced, the cost of the Thermo 1 plant far exceeded UTCP's projections. "Indeed, Raser believes that on an installed-cost-per-kilowatt basis, Thermo is the most expensive geothermal plant ever built in the United States  and perhaps the world."

One independent observer, who has followed Raser's story and repeatedly warned investors to stay away from the company's shares, in part because their "balance sheet is a mess," said he doubts the lawsuit will be successful.

Raser's management long claimed in the company's regulatory filings that they possessed the technological prowess and acumen to build geothermal plants, said David Phillips, editor of the 10Q Detective website, which offers information to investors gathered from the documents that publicly held companies file with the U.S. Securities and Exchange Commission.

He points to an April 2009 statement from Raser in which its CEO praised Pratt & Whitney  the company Raser now accuses of fraud.

"We are grateful for our strong partnership with [Pratt & Whitney Power Systems] and appreciate their commitment to help us develop these geothermal power plants," said Cook, who resigned as CEO four months later. "They continue to be very supportive and stand behind their modular units, which continue to perform at higher levels than expected."

Raser's management, including the company's current CEO, Nick Goodman, didn't return repeated telephone calls seeking comment about its lawsuit or its future.

The company's website, however, suggests that now that it has shed its debt, it intends to proceed with the development of its geothermal resources.

And despite the allegations in company's lawsuit, the Thermo 1 plant is continuing to operate, according to U.S. Bankruptcy Court documents and the plant's largest customer, the city of Anaheim, Calif.

"We're still getting six or seven megawatts of power from Raser," said Steve Sciortino, Anaheim's integrated resource manager. "I understand they have had problems at the plant but hear they are working them out."

Still, it is unclear how much of a role the Thermo 1 plant, with its PureCycle technology, will play in the future of the Raser, whose Chapter 11 plan gave ownership of the business to an investment group that includes Linden Advisors LP and Tenor Capital Management, both of New York City.

"Raser spent over $100 million attempting to make the PureCycle units at the Thermo 1 plant into a commercially viable utility-scale power facility," its lawsuit said. "This money was spent in vain. The PureCycle units did not function as UTCP had represented they would in order to induce Raser to buy that system, and the units are now in the process of being scrapped."

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